While Super Bowl fans are riding zip lines through downtown Indianapolis this week in the runup to the National Football League’s championship game, taxpayers are digging deeper in their pockets to pay for the stadium where the game will be played.
The $720 million Lucas Oil Stadium, where the New York Giants meet the New England Patriots on Feb. 5, has prompted local officials to raise hotel, restaurant and rental car taxes, and make other payments on top of about $43 million in unexpected financing costs related to their sports and convention facilities.
“They said, ‘We’re going to have one great fantastic party with an unbelievable advertisement for Indianapolis (8383MF) and it isn’t going to cost taxpayers a dime,’” said Pat Andrews, 60, a blogger and community activist who ran unsuccessfully for City Council last year. “Well, baloney.”
Plans for the 63,000-seat stadium that opened in 2008 as the home of the Indianapolis Colts were unveiled almost a decade ago. Since then, the collapse of the auction-rate bond market has led officials to restructure what grew to $666.5 million of public debt.
The Capital Improvement Board of Managers of Marion County (69790MF), which operates the stadium, collects about $120.6 million in fees and other payments to cover running it and other venues, which is more than double the $58 million it would have received from taxes in place before work on the stadium began, according to financial statements.
“The net effect of hosting the NFL Super Bowl is marginal,” said Brian Williams, a local resident and health- care consultant with PwC Consulting. “You should be very clear about the difference in financial cost and the lack of returns on the investment.”
The added taxes and fees are on top of $7 million in costs to issue the bonds, undisclosed fees to restructure debt and annual loans from the state that have totaled $9 million.
After credit markets collapsed in 2008, the Capital Improvement Board had to borrow $16.9 million from the state treasurer to end a swap agreement with KeyBank, according to minutes from a Jan. 27, 2009, meeting. The board also faced paying $26.3 million after it lost debt-insurance policies provided by Ambac Assurance Corp. (ABKFQ) and MBIA Insurance Corp. (MBI), according to the minutes.
$250,000 a Year
The Colts, meanwhile, financed two-thirds of their $100 million cost of the stadium through local-government issuers and now pay $250,000 a year to use the stadium -- about two-thirds of the league minimum salary for rookies.
“When you’re talking about that much money, there’s better ways to spend it,” said Justin Ross, who teaches public finance at Indiana University. “Super Bowls, like Olympics, don’t seem to produce much economic benefit and probably have some significant costs.”
Indianapolis isn’t alone. Scores of public officials from Portland to Puerto Rico bought the same Wall Street pitch: Auction-rate bonds -- variable-rate securities with yields that reset at weekly or monthly auctions -- would lower municipal- financing costs by letting them pay short-term rates, and derivative agreements known as interest-rate swaps would protect them if markets moved in the wrong direction. The Giants and Patriots borrowed for their stadiums with those bonds and got stuck with interest rates as high as 20 percent.
As officials in Santa Clara, California; Minnesota; Atlanta; and San Diego debate paying for NFL stadiums, research by Judith Grant Long, who teaches urban planning at Harvard University in Cambridge, Massachusetts, has shown that costs often exceed expectations. Public subsidies for sports venues cost taxpayers an average of 40 percent more than the stated price for each of the 99 facilities built through 2001, according to her research.
Dan Huge, the chief financial officer of the Capitol Improvement Board, said the organization was successful in raising the revenue it needed to continue operating.
“We did that mostly with taxes on out-of-town guests,” Huge said in an interview. “We were able to keep our balance sheets at adequate reserve levels.”
Indiana increased efforts to attract sports organizations and events in 1979 with the creation of the private, not-for- profit Indiana Sports Corp. The home of the Indianapolis 500 auto race attracted the Pan Am Games in 1987. In 1999, the National Collegiate Athletic Association moved its headquarters to the city.
At about that time, Indianapolis began seeking a deal to keep the Colts, who had played in the RCA Dome, the league’s smallest venue, since departing Baltimore in 1984. The Colts’ lease contained an escape clause allowing the club to move as soon as 2006 if revenue didn’t match the league median. A 2002 poll by the Indianapolis Star and WTHR-TV found 71 percent of residents disapproved of using tax money for a stadium.
In December 2004, then-Mayor Bart Peterson and owner Jim Irsay announced they’d reached a deal that would keep the Colts in Indianapolis for at least 30 more years. The centerpiece of the agreement: The city would build a new stadium downtown as part of a renovation of the convention center. That plan included a venue that cost $600 million, paid for with gambling money.
Legislators rejected Peterson’s finance plan, and the mayor lost control of the project to a state board controlled by the governor, said Ross, of Indiana University. Peterson didn’t return a telephone call seeking comment.
Hotel Tax Raised
The bill that eventually passed raised the hotel tax in Marion County, which encompasses Indianapolis, to 9 percent from 6 percent, on top of a 6 percent state tax. County rental car taxes doubled to 4 percent. Marion County doubled its food and beverage tax to 2 percent and surrounding counties added a 1 percent restaurant tax.
John Livengood, president of the Indiana Restaurant Association, said the businesses he represents supported the 3 percentage point hotel tax increase to expand the convention center and build a stadium. At the last minute, the mayor and governor also endorsed increasing the 1 percent restaurant tax used to finance the old stadium, and the governor campaigned to get surrounding counties to go along.
“We opposed the new taxes, as we had the first restaurant tax, but at that point it was too late to go in another direction,” Livengood said by e-mail. “No one wanted to lose the Colts.”
Peterson applauded the legislation in a statement at the time, saying the project would add a combined $2.25 billion to Indianapolis’s economy, guarantee decades of hosting college basketball tournament games and make the city eligible to host Super Bowls, “the crown jewel of the sports world.”
Peterson also said that while the plan included money to design and build the stadium, the law made no provision for the cost of operating and maintaining it.
“Unless rectified by future legislative action, this situation will bankrupt the CIB shortly after the project is completed,” he said.
To pay for construction of the stadium, the Indiana Finance Authority borrowed about $612 million from 2005 to 2007 using auction-rate bonds secured by state appropriations and insured by New York-based FGIC Corp. Kendra York, public finance director for the authority, didn’t respond to a telephone call and an e-mail seeking comment on the matter.
Credit markets began to freeze up during the sub-prime- mortgage market collapse in 2007, before the stadium opened. FGIC lost its AAA rating in January 2008 and buyers became less interested in the securities because the lower grade increased the risk that they wouldn’t get paid in the event of a default. The auction-rate market fell apart the next month.
As a result, interest rates on some of the stadium bonds jumped to 15 percent on Feb. 13, 2008, from 3.4 percent seven days earlier, data compiled by Bloomberg show.
The stadium, designed by Dallas-based HKS Inc., opened in August 2008. It has a peaked roof, gabled north-south down the length of the playing field, that can open and close in nine minutes. A 110-foot (34-meter) wide by 88-foot-high window looks north over downtown.
Five months later, as Peterson had feared, the Capital Improvement Board began predicting a 2009 deficit of $25 million growing to more than $45 million in the next year. That included a $19.5 million shortfall for the stadium, new bond insurance, and the $16.9 million to unwind the unfavorable rate swap.
The board began saving money, cutting about $3.2 million in grants to groups including the Arts Council of Indianapolis. In July 2009, state lawmakers approved a plan that closed the agency’s budget gap by letting the city raise hotel taxes to 10 percent from 9 percent and loaning it about $9 million a year. The board’s budget for 2011 restored about $600,000 in arts and culture grants.
NFL owners voted in 2008 to hold the 2012 Super Bowl in Indianapolis. The state’s website describes a potential economic impact of $286 million. A study from Ball State University in Muncie, Indiana, said the game may be worth $365 million in economic activity, noting that figure didn’t account for local public-sector expenditures.
Those numbers may be three to 10 times higher than the game’s actual value, based on data such as employment, tax receipts and personal income, according to Victor Matheson, an economist at the College of the Holy Cross in Worcester, Massachusetts. He has studied impact estimates of the game.
“A rule of thumb economists use is to take whatever the organizers tell you and move the decimal point one place to the left,” Matheson said. “There’s every reason to believe the Super Bowl will make Indianapolis residents happy. But there’s no reason to believe it will make them rich.”
Mark Rosentraub, who teaches economics at the University of Michigan, said Indianapolis needed a subsidy to keep the team, because it’s one of the league’s smallest markets. The project was also the backbone of a downtown redevelopment effort that used about $2.5 billion in public investment. It helped companies including Marriott International Inc., which opened the world’s-largest J.W. Marriott in 2011 as part of a $450 million downtown hotel complex, produce a total of about $8 billion in development.
“It’s a large subsidy,” Rosentraub said. “The positive is if you take a look at downtown Indianapolis, it’s probably the most active downtown in the Midwest and it’s going to look spectacular at the Super Bowl.”
For Governor Mitch Daniels, a Republican, the state’s help for the area wasn’t just about the stadium or the Colts, according to Jane Jankowski, a spokeswoman.
“It was about the expansion of the Indianapolis Convention Center and the economic development it would bring,” Jankowski said by e-mail. “Seven counties in central Indiana, which receive the greatest benefits from the project, worked together to make an investment in the future of the area and share the responsibility for financing the stadium through a regional food and beverage tax. No state tax dollars were used and no tax dollars are being collected outside of central Indiana.”
This week, organizers set up an 800-foot zip line over part of the downtown, as part of what the city is calling “the Epicenter of Awesome.” Other attractions include a nightly light and pyrotechnics show, free concerts and ice sculptures.
Andrews, the former Indianapolis City Council candidate, said the money spent on the stadium and game could have been used to better effect. She said there’s been insufficient accounting of the game’s public costs, such as forgiven taxes, or the proceeds from public parking lots turned over to the NFL.
The CIB expects to lose about $800,000 hosting the game, after paying for things like extra workers, maintenance, legal services, utilities and snow removal, according to Huge.
“The public still hasn’t had full disclosure of what it’s going to cost,” Andrews said. “It’s going to have to come out of services. And we don’t have any extra cash lying around.”